Silver Outlook 2015: Does Supply and Demand Imbalance Mean Higher Prices?

SilverI pay close attention to investments that fall out of favor with investors. And the silver market certainly is down and out right now. While silver prices have fallen, and investor sentiment on the metal is negative, the fundamentals for silver are getting better.

Silver Supply Too Tight

I have talked in these pages about how the world supply of gold is contracting. When it comes to the supply of silver, the situation is worse.

In the first two months of 2015, in Canada, silver production was at 64,330 kilograms (kg). In the same period a year ago, silver production was at 73,390 kg—that’s a 12% contraction in the supply of silver in two months from one of the world’s biggest silver-producing countries. (Source: Natural Resources Canada, last accessed May 6, 2015.)

According to the World Gold Survey published by The Silver Institute and Thomson Reuters GFMS, silver production in 2015 is expected to decline for the first time in 12 years. (Source:  The Wall Street Journal, May 6, 2015.)

I am noticing that silver mining companies are turning their focus away from silver in their effort to do anything and everything to stay financially afloat. A few of the big silver miners that I closely follow have recently purchased gold companies. Coeur Mining, Inc. (NYSE/CDE), hands down one of the biggest names among silver miners, reported a decline of seven percent in its silver production, and an increase of 18% in its gold production for the first quarter of 2015. (Source: Coeur Mining, Inc. May 4, 2015.)

Demand for Silver Remains Strong

On the demand side, silver has been very aggressive so far in 2015.

In just March of this year, India imported $561.4 million worth of silver. In the same period a year ago, it imported $191.1 million worth of silver. This represents an increase of 194%! (Source: India’s Ministry of Commerce & Industry, last accessed May 6, 2015.)

The Work Gold Survey also says it expects demand for silver to increase this year, especially because of rising demand for silver coins and silver bars. Demand for silver for jewelry is expected to improve this year as well. Demand for silver for use in technology, however, is forecast to be flat in 2015.

Silver Outlook for 2015

With all this said, paying attention to the technicals, they suggest solid price support building in the silver market. Please look at the chart below.

Silver Chart

Chart Courtesy of StockCharts.com

Since November of 2014, we’ve seen the price of silver trading in a range with very strong support around $15.50 an ounce. This level has been tested five times without breaking. This means there’s a significant amount of buyers at $15.50 an ounce for silver who find that price attractive for accumulating.

I remain optimistic on silver. You don’t hear much at all from the mainstream on gold or silver these days. Looking at the fundamentals, with demand rising and supply falling, I see the foundation in the works for a strong rise in silver prices.